Uganda shilling helped by falling inflation

KAMPALA (Reuters) - The Ugandan shilling climbed 0.6 percent against the dollar on Tuesday, after data showed inflation in east Africa's third largest economy slowed for a third straight month on the back of a drop in food prices.

Analysts said the data made a rate cut at the central bank's policy meeting on Wednesday more likely but this was unlikely to change the shilling's direction.
Lower inflation also draws inflows from investors seeking to take advantage of more attractive real yields on Ugandan debt.
At 1117 GMT, commercial banks quoted the local currency at 2,320/2,330, firmer than Monday's close of 2,330/2,340.
The country's statistics office said on Tuesday a decline in food prices sent the country's headline year-on-year inflation down for a third consecutive month to 25.7 in January from 27 percent in December.
"The shilling is firm on its upward trend and the inflation news has lent it new energy," said Faisal Bukenya, head of market making at Barclays Uganda.
"We're now likely to see higher inflows from offshore investors as falling inflation makes government debt even more attractive."
The shilling has been rising against the dollar for nine straight days, in part helped by surging greenback inflows from foreign investors rushing in for high-yielding government debt.
The central bank is scheduled to auction a 5-year Treasury bond worth 95 billion shillings on Wednesday.
Analysts expect the paper's yield to hit a record high, possibly exceeding 20 percent, from 16.74 percent reached at the last auction in September.
Bukenya said the slowdown in inflation was likely to trigger a modest reduction in the central bank's key lending rate at a monetary policy committee meeting on Wednesday.
"But the shilling would still maintain its upward trend because in the short term, the policy stance will still remain relatively tight," he said.
Policymakers left the rate unchanged at 23 percent in the last two meetings after inflation started declining in November.
The shilling is up 6.8 percent against the greenback this year, and way off its historical low of 2,901 hit last September.